Understanding leadership theories and how they are affected by an organization's hierarchical structure helps executives develop useful tools to build and strengthen teams. Vertical strategies look very much like pyramids on organizational charts, whereas horizontal strategies eliminate a lot of middle management's roles. It is more than just the structure, however, that determines how strategic management utilizes each method.

Difference Between Horizontal and Vertical

The fundamental difference between a horizontal and a vertical structure is who is making decisions. In the vertical structure, decisions are made at the top and flow down first to middle management, then to supervisors and ultimately down to the workers. In a horizontal structure, employees are given leeway to make decisions on their own, usually based on company guidelines. Only critical decisions require higher-level management to step in and make decisions.

In practical terms, the vertical organizational structure feeds well into an autocratic leadership style where bosses set the rules and give orders, and employees are expected to execute those orders. Essentially, the "boss knows best" for the company in this scenario. The horizontal structure feeds much better into a visionary leader's approach where the boss wants employees to find the best ways to meet the vision and mission of the company. In this scenario, the boss feels employees are able to help drive efficiency, creativity and innovation when given opportunities to make decisions at the grassroots level.

Horizontal Business Model

The horizontal model is designed to facilitate collaboration and teamwork. Operational decisions are often made by those performing the operations. For example, a sales representative is allowed to offer certain discounts without approval to get the sale. This may affect his commission, but he is allowed to make that decision without upper management approval.

Another example might be a floral company with many assemblers. The company choosing a horizontal integration allows each of the assemblers to create their own arrangement. This would be unlike a vertical integration, where every arrangement is predefined by managers and executives and the assemblers add no creativity to the process.

Communication in a horizontal business model flows directly to individuals who need the information rather than up the chain of command to later be redistributed to other department heads. This flow expedites information and reduces the transactional requirements of upper-level management.

Vertical Expansion Model

An organization can function as a horizontal business model and still conduct vertical expansion. Vertical expansion is when the company opens operations and distribution channels for a new type of product or service. It expands from its standard products.

A good example of vertical expansion is when Apple jumped into telecommunications with the development of the iPhone. The computer company added the vertical that ultimately revolutionized the entire tech and telecommunications industries. While the overall company structure has leadership at each vertical, the fundamental method of management within departments remains horizontal to inspire new creative innovations, many of which cross over from vertical departments – for example, an iPhone app becoming integrated into the operating platform of the Mac computers.

Leadership Adjustments

Business executives must understand how teams respond to different structures. At the end of the day, the staff can't run the company, so when a leader allows too many decisions to be made at base-level operations, the risk is that the company moves away from fulfilling its mission and vision. When leaders are overly task-oriented, controlling everything from an executive office, it can be demoralizing and uninspiring to staff.

The trick for leaders is to set a clear mission and vision for the company and make sure everyone in the organization understands it and believes in it. Then the leader must strategically delegate, set parameters and allow for decisions to be made at various levels independently.

About the Author

With more than 15 years of small business ownership including owning a State Farm agency in Southern California, Kimberlee understands the needs of business owners first hand. When not writing, Kimberlee enjoys chasing waterfalls with her son in Hawaii.

bibliography-iconicon for annotation tool Cite this Article

Choose Citation Style

Leonard, Kimberlee. "What Are the Differences Between Vertical & Horizontal in Strategic Management?" Small Business - Chron.com, http://smallbusiness.chron.com/differences-between-vertical-horizontal-strategic-management-24460.html. 30 October 2018.

Leonard, Kimberlee. (2018, October 30). What Are the Differences Between Vertical & Horizontal in Strategic Management? Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/differences-between-vertical-horizontal-strategic-management-24460.html

Leonard, Kimberlee. "What Are the Differences Between Vertical & Horizontal in Strategic Management?" last modified October 30, 2018. http://smallbusiness.chron.com/differences-between-vertical-horizontal-strategic-management-24460.html

Note: Depending on which text editor you're pasting into, you might have to add the italics to the site name.